Increasing HSA limit would not necessarily influence individuals to contribute more

The House of Representatives has passed the Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts of 2018. The bill would increase the annual limits on contributions to health savings accounts (HSAs) to match the out-of-pocket deductibles of high deductible health plans (HDHPs). However, the Employee Benefit Research Institute (EBRI) has found that increasing the HSA limit would not necessarily influence individuals to contribute more money into their HSAs.

The legislation would nearly double statutory limits on annual contributions to HSAs those with employee-only health coverage—from $3,450 to $6,550—and, those with family coverage could contribute even more—a new total of $13,300 ($6,400 more than the current $6,900 limit for HSA account holders with family coverage).

An analysis of the EBRI HSA Database found that only 13 percent of account owners contributed the maximum in 2016. EBRI noted that this is a small minority of HSA accountholders, despite the fact that contributions to an HSA benefit from a triple-tax advantage: (1) employee contributions to the account are deductible from taxable income; (2) any interest or other capital earnings on assets in the account build up tax free; and (3) distributions for qualified medical expenses from the HSA are excluded from taxable income to the employee.

However, EBRI’s research also reveals that account holders who held their HSAs for a longer period of time tended to contribute more. “The longer someone has had an HSA, the more likely they are to contribute the maximum,” said Paul Fronstin, director of health research. “Only 6 percent of the HSAs opened in 2016 received the maximum annual contribution, whereas 30 percent of the accounts opened a decade earlier, in 2006, did,” he said, concluding that the longer an individual contributes to an HSA, the more they may appreciate the benefits of the accounts.

“Still, more education is needed so that workers obtain the full value of HSAs when they are available to them,” Fronstin said.